The Dot-com Bubble, also known as the Internet Bubble, was a speculative bubble that occurred roughly between 1995 and 2000. This period saw an enormous growth in the usage and adaptation of the Internet, leading to a surge in the valuation of technology companies, particularly those involved in Internet technologies.
Historical Context
The bubble was characterized by:
- Excessive Investment: Venture capitalists invested heavily in Internet startups, often without regard to profitability or sound business models.
- Public Interest: A widespread belief that traditional metrics of company valuation did not apply to Internet companies due to their potential for rapid growth.
- Stock Market Boom: The NASDAQ Composite stock market index, which was home to many tech companies, rose from under 1,000 to over 5,000 between 1995 and 2000.
Rise of the Bubble
The bubble was fueled by several key factors:
- Increased Internet Access: As more people gained access to the Internet, the potential market for online businesses grew exponentially.
- Media Hype: Media coverage often portrayed the Internet as a new frontier with limitless potential, fueling public and investor excitement.
- IPO Frenzy: Numerous Internet companies went public with high valuations despite having little or no profits. The most notable examples include:
- Pets.com, which became iconic for its rapid rise and fall.
- Webvan, which promised to revolutionize grocery delivery.
Bursting of the Bubble
The bubble began to deflate in March 2000:
- Fed Rate Hikes: The Federal Reserve raised interest rates, which made capital more expensive.
- Market Realization: Investors started to recognize that many Internet companies were overvalued, with unsustainable business models.
- NASDAQ Crash: The NASDAQ peaked at 5,048.62 on March 10, 2000, and then entered a prolonged decline, losing about 78% of its value by October 2002.
Aftermath
The aftermath of the Dot-com Bubble had several notable effects:
- Survivors and Consolidation: Companies like Amazon, eBay, and Google survived and eventually thrived by adapting their business models.
- Shift in Business Practices: There was a move towards profitability, sustainable business models, and realistic valuations.
- Lessons Learned: The event taught investors and entrepreneurs the importance of fundamentals over hype.
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